What Is Balance Forward Billing and How Does It Work?
Learn about balance forward billing: how this common accounting method works, its key characteristics, and what it means for your statements.
Balance forward billing is an accounting method where an outstanding amount from a previous billing cycle is carried over and included in the current bill. This practice consolidates financial obligations, presenting a cumulative total that encompasses both past due amounts and new charges.
How Balance Forward Billing Works
The core of balance forward billing involves calculating the total amount due by considering the previous period’s unpaid balance. At the close of a billing cycle, any remaining balance becomes the starting point for the subsequent period. This carried-over amount is then combined with new charges incurred during the current cycle. Any payments received since the last bill are also factored in, reducing the total obligation.
The calculation for the current balance due can be summarized as the previous unpaid balance, plus new charges, minus any payments received. For example, if a customer had a $50 balance outstanding from the last period, incurred $100 in new services, and made a $25 payment, their current balance forward would be $125.
Defining Characteristics and Common Uses
Balance forward billing is characterized by its cumulative nature, where the current statement reflects a running total of a customer’s account activity over time. This system typically presents a beginning balance carried over from the prior period, an itemized list of current charges and activities, payments received, and the current total outstanding balance. Its design simplifies record-keeping by integrating past and present financial obligations into a single document.
This billing method is frequently employed by businesses that handle a high volume of recurring transactions or provide continuous services. Common users include utility companies, such as electricity, water, and gas providers, telecommunication companies, and credit card companies. The practice offers simplicity from the biller’s perspective, as it avoids the need to re-itemise past charges in detail on every new statement.
What It Means for Bill Recipients
For individuals and businesses receiving a balance forward bill, a key characteristic is how past information is presented. The bill will display the previous balance carried forward, but it typically does not provide a detailed breakdown of that specific amount on the current statement. Only the new charges and activities for the most recent billing period are itemized in detail. This structure means that the carried-forward balance represents a consolidated figure from prior periods.
To understand the full itemization of a previous balance, the recipient generally needs to refer to their prior statements. For instance, if a customer questions a balance carried forward from two months ago, they would need to pull up the statement from that period to see the specific charges and payments that contributed to that amount. This design requires bill recipients to maintain their own records of past statements if they wish to review the detailed history of a carried-forward balance.